Kevin Drum has posted a must-read interview with Paul Krugman on his blog. As someone who's tangled with Krugman in the past, I was entranced by the interview's mix of defensible economic critiques and wild-eyed political paranoia (and a hat tip to Drum for doing a great interview).

Here are some of the choice quotes:

From the introduction to Krugman's new book, The Great Unraveling: "There's a pattern...within the Bush administration....which should suggest that the administration itself has radical goals. But in each case the administration has reassured moderates by pretending otherwise — by offering rationales for its policy that don't seem all that radical. And in each case moderates have followed a strategy of appeasement....this is hard for journalists to deal with: they don't want to sound like crazy conspiracy theorists. But there's nothing crazy about ferreting out the real goals of the right wing; on the contrary, it's unrealistic to pretend that there isn't a sort of conspiracy here, albeit one whose organization and goals are pretty much out in the open."

Krugman on the book: "The central theme is, we're being lied to by our leaders, and I just felt I really needed to put that very strongly in context."

Krugman on his political transformation: "During the 2000 campaign I was inspired to get radicalized. You know, this was not your ordinary average slightly misleading campaign, this was something off the scale, but most people just wouldn't go at it. And that's when I started saying that if Bush said the Earth was flat, the resulting article would say 'Shape of the Earth: Views Differ.' And then after September 11th it was really impossible, because people wanted to believe good things that just weren't true."

Krugman on America's social cohesion: "Is this the same country that we had in 1970? I think we have a much more polarized political system, a much more polarized social climate. We certainly aren't the country of Franklin Roosevelt, and we're probably not the country of Richard Nixon either, so I think we have to take seriously the possibility that things won't work out this time."

Krugman on his blog preferences: "I'm on the web, I read Josh Marshall regularly, and Atrios regularly, and I read you occasionally, once every couple of days so I know what's going on."

Go read the whole thing. [Won't your conservative readers be too pissed off to bother?--ed. Then they would be falling into the same trap that Krugman's last quote suggests, which is reading only one half of the blogosphere. However, for those who are right of center, open up a new page and look at this Charles Krauthammer essay on Bush-hating and then read Krugman.

UPDATE: Krugman is giving a lot of interviews to promote his news book. Here's a link to his chat with Buzzflash. One excerpt:

[A] good part of the media are essentially part of the machine. If you work for any Murdoch publication or network, or if you work for the Rev. Moon's empire, you're really not a journalist in the way that we used to think. You're basically just part of a propaganda machine. And that's a pretty large segment of the media.

"I think we have a much more polarized political system, a much more polarized social climate."

His solution? To "radicalize" himself and transform himself from being a sober, if somewhat Liberal and ocassionaly IMO too pessimistic, economist contributing ideas to becoming part of the problem he criticizes here, polarizing everything and hurling rhetorical bombs, pointing fingers at everyone for the problem but himself and "his side", opining from On High, difinatively, on subjects that he knows little about and bothers even less to learn about, &tc.

*sigh* I used to respect Krugman even when I disagreed with him. That seems *soooo* long ago now.

"But there's nothing crazy about ferreting out the real goals of the right wing; on the contrary, it's unrealistic to pretend that there isn't a sort of conspiracy here, albeit one whose organization and goals are pretty much out in the open."

That's new for me, conspiracies that are out in the open. What's the point of conspiring when you do it openly ? I don't know, which is probably why I'm not on everybody's shortlist to win a Nobel prize.

"Is this the same country that we had in 1970?"

I suppose not and luckily so. The seventies weren't the best era in American history. But Krugman probably means that the USSR's prospects of winning the Cold War were pretty good in 1970.

"I think we have a much more polarized political system, a much more polarized social climate. We certainly aren't the country of Franklin Roosevelt, and we're probably not the country of Richard Nixon either, so I think we have to take seriously the possibility that things won't work out this time."

Not being the country of Nixon sounds like a very good thing. The polarization has much to do with the fact that there are two strong parties nowadays, instead of a superparty and a political dwarf.

Krugman is demonstrating the course of the entire Democrat party in a one-man microcosm of paranoia, extremism as reaction, and irrationality. I too once had some respect for him but that was a very long time ago.

I remember in the mid 1990's often reading or listening to Krugman as a fairly credible source on Free Trade.

But I figure by going from 5,000 word pieces to 750 word pieces, Krugman, has cut out any balance since there simply is no room.

Watching Charlie Rose last night-the first half was Tom Friedman, the second, Krugman. Both had harsh words for the administration, but at least with Friedman you still get some good things, or positive things.

My favorite part of the Krugman interview was when he said that he wouldn't learn anything by going to Iraq-you see he's not a reporter. Well, if you can't learn a thing from doing some first hand research, you shouldn't have a column at the New York Times.

I have a friend who's a new hire at the INS, screening incoming airline passengers, spotting document fruad, that sort of thing.

She tells me stories about the cynical old-timers. About how people sign-in for a day's worth of overtime, and then just disappear, collecting $1000 of taxpayer money for the day. About how she's brought in for 14-hour days, four hours of which she spends as the extra-hand on a screening team that doesn't need her. The INS is rife with this, as are, I suspect, all other Federal agencies.

And what's the "Krugman plan?"

"A phased elimination of all the Bush tax cuts, plus some additional taxes."

How about some f*cking fiscal discipline on the part of the Federal Government, first? Why is Paul's solution always to take more of my money and give to a profligate government?

There's something wrong with someone who lives in Princeton and can claim that a $3 million 7,000-square foot home isn't really rich...and I know, because I lived the next town over, and had no trouble identifying the owners of 7,000-square foot homes as rich.

I live in a 940-square foot home. I made a bit more more money in '02 than in '01, and my overall income tax bill was a slightly smaller percentage of my income.

"...the same trap that Krugman's last quote suggests, which is reading only one half of the blogosphere."

Yeah, because Krugman relies solely on blogs. Did drezner even READ the interview: 'I read seven newspapers every morning. I get four delivered, I read the Washington Post online, and I look at a couple of the British papers, not always the same two."

Let's see... might he not read, oh, say, the Washington Post (w/Samuelson, krauthammer, Hiatt, a center-right editorial page, etc....), right of center brit papers, the Wall Street Journal, right of center economists in his academic reading, etc....? Might he not access the thoughts of non-blog rightwingers like many times a day?

Drezner's comment here combines conservative paranoia with far more than a dollop of blogger triumphalism in such a way that it entirely undermines his flip dismissal of Krugman's reading of the political situation in the US.

Paranoia? Paul Krugman is almost certifiably insane. No one is afraid of him aside from his mental instability. He qualifies himself as "radicalized" and, by definition, radicals are not mentally stable people.

Krugman is going down the same pundit's path to paranoia and extremism that Patrick Buchanan followed a few years ago. I wouldn't be at all surprised to see the big K run for president as a Green 8-12 years or so from now...

Reading Krugman's rants long ago lost its appeal to me, though every now and then I revisit his NYT column to confirm that he hasn't regained some of his sanity and is sharing sense with us again...

More depressing though, were some of the comments following the interview from the readers. While I learned to filter out the robot-like 'I hate Bush' screeds (these people really need to switch to decaffinated), what did surprise me (it shouldn't have, but it did) were some of the readers who simply couldn't conceive of conservatives as anything other than villians motivated entirely by greed and a lust for power. The concept that reasonable people could honestly disagree with them seemed utterly beyond their capacity to grasp....

On the other hand, if these are the core of the Democratic party, 2004 should be a very good year indeed...

On the 'other' other hand...the country is not healthy without a healthy (as opposed to unhinged) opposition...

Could someone explain exactly why Krugman is 'insane', 'nuts', or 'unhinged'? Specifics, anyone? The man is sometimes wrong, but are his arguments so beyond the pale that they are outside the bounds of rational discourse? I don't think so, and no one seems to have proven so. Right-wingers just assert he is nuts so they don't have to deal with his substantive critiques of Bush and his administration.

Perhaps Krugman suffers from Bush-hatred, but the right-wingers out there seem to suffer from intense Krugman-hatred. The extent of this is seen by the willingness of otherwise reasonable folks like Drezner to link to Donald Luskin, who gets slapped around by Kevin Drum, Brad DeLong and others so often it's become a ritual. Get a grip, people. . ..

Krugman's decent into political madness indicates much more trouble for the Dems than they might realize. The party establishment can desperately seek to stop Dean and his radical mob, but Krugman is a more worrisome (for loyal Dems or advocates of sound political parties) indicator of where their "intellectual elite" is headed. The party can survive an angry demagogue as its one-time nominee, but if their best minds are unhinged as Krugman's, they've no future.

Unless of course the party repudiates him, but they're having too much fun with his Bush-baiting. Krugman could be the Dem's Andrew Fastow. Ironic, eh?

"The man is sometimes wrong, but are his arguments so beyond the pale that they are outside the bounds of rational discourse?"

Krugman believes the goal of the administration is to effectively abolish elections. He states that another goal is to eliminate teaching evolution in schools, and to start teaching religion. He states that administration is trying to eliminate social security, medicare, and unemployment insurance.

Note that all of these assertions are based on precisely nothing. Bush extended unemployment benefits during the recession. He has repeatedly asserted that social security will continue. He just added the largest benefit to medicare since it was formed. What the fuck is Krugman talking about? Is there one single piece of evidence that supports this silly view?

His concerns are a laundry list of lefty issues with absolutely no basis in reality. That lefties buy the same scare tactics repeatedly despite the obvious evidence to the contrary is so disappointing I can't describe it.

The only real question is whether he is truly insane or does he believe that acting so is the path to fame and fortune.

Someone named "ps" has lost grasp of definitions. No one has shown hatred for Paul Krugman. They believe him to be a man who espouses beliefs and lies (well documented by NRO's Truth Squad) that are often beyond the pale.

I fear for the man's mental stability; I have no hatred or anything nearing hatred for him. I think he needs a hug and some quiet time.

What makes him insane? Anyone--ANYONE--who writes that Enron will be a more important event to the US than September 11th is completely unhinged from reality. To qualify those two events on the same plane shows a complete disregard, no, disrespect, for reality.

"But there's nothing crazy about ferreting out the real goals of the right wing; on the contrary, it's unrealistic to pretend that there isn't a sort of conspiracy here, albeit one whose organization and goals are pretty much out in the open."

I think that sums it up pretty well. As Scott put it above,

"some of the readers who simply couldn't conceive of conservatives as anything other than villians motivated entirely by greed and a lust for power. The concept that reasonable people could honestly disagree with them seemed utterly beyond their capacity to grasp...."

That's it in a nutshell. Basically, it CAN'T be that the EVIL EVIL right simply BELIEVES this stuff - it HAS to, HAS TO be that they're just lying to cover up their greedy scemes to [fill in the blank, usually involving OOOOIIIILLLLL].

*I* am conservative, and I don't want anything to do with OOOIIIIILLLLL. I also don't want to own half the planet and make everyone work for me for pennies on the hour. I could go on.

Perhaps Krugman invites it with his rhetoric, but it is a shame that I haven't seen much of an intellectual response to a charge that many moderate conservatives agree with: in the long run the Bush tax cuts and the system of Social Security/Medicaid/Medicare entitlements are incompatible. If this is so, was the choice for the tax cut not also a choice to put serious pressure on future administrations to cut these entitlements, even if the administration deliberately did not frame it in this way? I am no conspiracy theorist, but I find it hard to disagree with at least this part of the "starve the beast" thesis.

He claimed, in an interview with Charlie Rose, that "Bush has gotten nothing but adulation from the press."
Even if you are convinced that the press has been too kind to Bush (and intelligent people can hold this view), can a sane person really hold the view that there hasn't been ANY criticism, or even balanced commentary about Bush in the press?

I was not implying that their analysis was the Holy Grail of economics (that was an unfortunate implication, if it was made), only that the man makes consistent errors (simple errors about the numbers of year a plan will be implemented, for example, that distort the values he is using *for* his argument by a factor of 100 or more) and that he often bases his articles in the belief that the goal of the Bush Administration is to make people poor or destroy the fabric of our society.

His rhetoric becomes unbearable after he writes such things as "The real threat isn't some terrorists who can kill a few people now and then but are not fundamentally a threat to the continuation of America as I know it, but the internal challenge from very powerful domestic political forces who want to do away with America as I know it." See, terrorists aren't a serious problem but George Bush and his team of evil men are. They want, and I quote, "to do away with America as I know it." I think some quiet time and a hug are still the best remedy for the man.

His hate infects his work and makes it nearly unbearable to read. Why not simply offer concise arguments using data and economic theory about a position, rather than positing that those whose opinions differ from your own are out to "do away with America..." Geesh. We, everyone here probably, can discuss tax cuts and government spending without saying that the person with a different view is essentially evil and out to do the nation great harm (i.e., their actual intent is to hurt people). That, however, would be anathema to the "radicalized" Mr. Krugman.

If you don't agree with PK, so be it. I do. Not on everything but on many things. PK has reached the conclusion that Bush's administration is a 'radical' one, trying to overturn the welfare state as we know. I tend to agree.

These are issues where it's impossible to agree if you have a different viewpoint. Yes, PK has taken a much more belligerent approach. I think he feels that's the best way of getting his message across. Think of Al Hunt, EJ Dionne, or Richard Cohen. All are well-known liberal columnists with decades of experience. They have all recently said the same things Krugman said, one of them even called Bush a "useful idiot". Yet nobody paid any attention to them. But they pay attention to PK.

On the technical issues PK has been practically always right. From his predictions about the tax cut to the CA energy crisis (and even on North Korea)he was right and his online critics wrong.

Luskin has tried to criticize PK on technical issues and failed miserably every time. Again, the tax cost of new jobs is the best example.

Yes, in the larger context, government waste is pocket change- and I regret the day that conservatives bought into the whole Peter Grace shallow analysis replete with cretinous headlines about $900 hammers (any first year cost accounting student who understands CAS demolishes that canard in 5 minutes).

However, also be truthful and admit that given the deficit projection of around $500 billion (no one has a clue what it will really be)- the amount conrtibuted by the estimated static analysis effects of the opportunity cost oif the tax cut contribution is less than a third, even by the Democrat official web site on tax cut "costs" (which are, as deficit projections are, only theoretical projections based on snapshot assumptions). So, let's get off the "tax cuts are the real deficit problem" nonsense and ask why the other $350 billion in projected deficit is there. Even if Bush is guilty of the ultimate in all evil- that is, the $87 billion request for Iraq (of course, in the views of the usual suspects out there, to pay off the Texas oil industry) PLUS up to $150 billion for Tax Cuts For The Rich, the total is less than half of the projected 2004 deficit.

Now can we get past the hyperventilating about tax cuts and deficits (which are high, but no respectable economist, including Keynes, has ever seriously suggested that tax increases promote economic growth or end recessions) and recognize the real cause of the deficit- it was and is primarily institutional entitlements and endless spending increases based on the current services baseline technique of budget planning, where increased spending is defined by headlines as "budget cuts".

Krugman says, "Even if you think the war was worth fighting, and I think that's a diminishing perception among people, we were lied into it, and that's scary, that's never happened before." Let's see, people said we were lied into (1) the Spanish-American War (see USS Maine); (2) World War I (see the Nye Committee); (3) World War II (see Pearl Harbor, conspiracy theories of); (4) the Cold War (see the New Left historians); (5) the Korean War (see I.F. Stone); (6) the Vietnam War (see Gulf of Tonkin; also see Baby Boomer generation, conventional wisdom of). So either Krugman rejects all of these and believes he really has witnessed something new, or he simply doesn't think too well on his feet.

As for the supposed "revolutionary" program of the Bush administration, I suspect that it will fare about as well as the Reagan Revolution and the Republican Revolution when it comes to the growth of government. I also wonder if the New Deal "infrastructure" that Krugman apparently holds sacred includes all those farm subisides that he shakes his head at. Then again, the whole point of the "revolutionary" schtick isn't to promote insight, it's to spook people. After all, what other "revolutionary" powers have we witnessed this century? Nazi Germany, perhaps. Bingo. That's the point. We're fighting FASCISTS here, folks! Just read the comments on Drum's site. One reader furrows his brow over "creeping fascism" (intended as the "appropriate" analogy versus all those "misleading, problematic and distracting" Nazi analogies).

Or take this one: "Recently at a cocktail party someone mentioned the 70's movie The Omen and we found ourselves playfully drawing parallels [with the Bush administration] for the next 30 to 40 minutes. Some parallels were downright scary." Not since "Radical Chic" have I read a funnier description of cock-wristed leftism. Nervous ultraliberals atwitter? At a cocktail party? Oh ho ho ho! Mr. Wolfe, check your blackberry.

At the least all those Frenchmen who became members of the Resistance after 1945 fought imaginary battles against real Nazis. The left, alas, has to settle for the heroics of handsomely rewarded "dissent" and an ever-inflating martyrdom complex.

Is GT going to ever get around to confronting the Enron/Sept. 11 quote thingie as evidence of insanity, or at least incredible partisanship? I mean I can see why you'd want to let that slide on by and bury us in some economics mumbo jumbo instead.

And yes, what about Doc Krugman's list of biggest threats to the US. The environment? Effen laughable.

We had eight long years of utter neglect for the environment under the Clinton administration, which waited until the last hours of its term in office to deliver any kind of substantive environmental reform. Gee, I seem to have missed Krugman's radicalization during all that time in the desert.

While insane may be too strong of a term, I would describe Krugman as pointless or useless. By this I mean you can predict everything he is about to write after his introductory sentence. And it is always about how Bush and Republicans are evil. What would be nice (and appropriate) from an economic scientist would be an honest analysis of how the shocks of 9/11 and the deflating Internet bubble have left the economy in a precarious state.

But no, all we get is the rhetoric. The republicans are destroying the economy so that they can declare marshall law. Silly.

So my feeling is that we can reach one of two conclusions. Either PK is pure partisan (which is fine) or he honestly believes that he is doing credible analysis (which makes him unhinged).

It seems to me that one of the reasons the Left/Right hatred (for lack of better descriptors) is so strong these days is because we disagree on the premises, but even moreso, we fail to actually articulate our premises, so we fail to understand that we are arguing from different sets of assumptions on what our goals are.

If you start by believing A is the goal, and then dissect reality to measure whether we are closer to A or not you may have a perfectly logical argument; if the person you are arguing with thinks B is the goal, the argument wrt A now looks like nonsense.

VDH made this point re: if you view our place in iraq now as peace or war, how what those two ideas logically entail are entirely different descriptions of how well we're doing.

But it's quite clear in Krugman's interview.

he says: The goal would seem to be something like this: a country that basically has no social safety net at home, which relies mainly on military force to enforce its will abroad...

when he says "no social safety net" he means 'a country that has no State-imposed social safety net'... whether or not that is what GWB's admin is doing or not, again, it doesn't seem to occur to him that some people feel family, community, church, clubs, etc. could provide a social safety net.

Next he says: If you think that income inequality is one of the things that drives this – and I do believe it's part of the story – then you have to look at the self-reinforcing process in which growing concentration of wealth at the top feeds into the political power of the people who serve that class's interest.

so, here we see a statement of a premise: that income inequality, that is, Relative income distribution matters more than Actual Income distribution--ie. if the poor all got richer, every one of them had their real wealth increase by 25%, while the richer had their real wealth increase by 40%, he'd consider that bad. But many of us don't think that. We actually care a great deal about the poor, but we think that real wealth increases solve the problem more than shrinking the relative income inequality. So if you believe that relative income inequality is bad, then you read the admin's "underlying motives" as bad, even though they just start from a different premise.

Next he says, referring to income inequality:
One thing that happens is you have an adversarial kind of society, you have a society in which people don't share the same lives at all, don't share the same values.

So, here you see that he feels that a society in which people don't share the same lives at all, don't share the same values is a society he views as adversarial--AND apparently, adversarial is bad.

but lots of people might feel a. not sharing values is a Good thing, and doesn't produce adversarial systems, and/or b. adversarial systems are trimmer, leaner, and produce better arguments, because people are forced (by their adversaries) to strengthen their ideas.

Again, it's the premises. If you think adversarial systems are bad, and disagreement on values leads to adversarial systems, then yes, only communism's enforced equality works for you.

So, one thing that we could do to improve the rhetoric, the arguments, the lines of thought, would be to stop calling people morons when their arguments seem illogical to us. It might be just that starting from their premises, their argument is logical, but we can't see the forest for the trees.

Ian: Look at the difference between discretionary and mandatory expenditures.

There's not waste on, for example, the actual money spent out in social security checks.

At best, you're going to get 5% of the 730 billion or so in discetionary spending. That's a little more than 36 billion dollars. If you wanted to believe that you could eliminate half the current deficit just through elimination of waste, you'd be believing that there's over 30% waste in the government.

you demonstrate the lack of falsafiability of PK and his attcks, which BY DEFINITION makes them IRRATIONAL and therefore useless as a basis for real politcal dialoque - which is another REAL threat he represents (and that DEAN rrepresents):
the destructiuon of the Democratic Party as a viable second party.
The trend to their - I should say our, as I'm a 4th gen democrat - DEMISE is a fact: no DNC presidential candiate - including Carter and Clinton have gotten more than 50% of the vote. And many of the elections were laffers!

I fear that - with the Democratic Party rapidly becoming an an even more narrow-interest group and an even more reactionary party than anything Buchanan could could have dreamt of doing to the GOP - we may lose the two-party system in the USA.

A more 1960's-liberal democrfatic candidate in 2004 will not do better than W by adevocating appeasement, accomodationism, and pacifism.

During te height of the anti-Vietnam war movement the Democrats suffered their worse defeats.

HAd Ford not told NY to drop dead, and gaffed on Poland and the Warsaw Pact Cartewr would have lost.

Clinton won only because he ran as a DLC/change welfare as we know it/pro-death-penalty candidate.

If anything - the post 9/11 country is more poised to support a candidate that promolgates a more robust defense and foreign policy, than candioates that propose more multilateralism and "softer" responses to the threat of Islamofascism.

I for one am a Democrat - a moderate - that has voted for a Republican ONLY ONCE IN MY LIFE, and that was Rudy versus Messenger - but I will surely vote for W if the DEMS nominate a candiate that is softer WW4 than Bush. And I know that many other DEMS feel the same way.

Therefore, unless a "softer" DNC candiate were to pull-in more than half of the registered voters (who don't usually vote) and more than haindependents half of the indeondents -he CAN'T POSSIBLY get elected.

Now, WSChurchill was out-of-step with the British population for a decade before he became PM in 1940.
But in his case, he was a rational politician arguing that the appeasers, pacifists, and accomodationists were all vitims of their own wishful thinking - in their case, the believed
---irrationally--- that Hitler could be trusted.

The Democratic Left is also accomodationist and more pacifist. But their misguided interpretation of current events is more based on a "NEGATIVE WISHFUL THINKING" - hoping that the economy goes bad, or that we get attacked again - so they can defeat W.

Until they come up with a credible rational ALTERNATIVE POLICY, their carping will not net them a single additional vote.

"So, let's get off the "tax cuts are the real deficit problem" nonsense"

They are a real problem. You don't think around 1/3 of the total deficit consitutes a problem?

"and ask why the other $350 billion in projected deficit is there. Even if Bush is guilty of the ultimate in all evil- that is, the $87 billion request for Iraq"

I'm not against the 87 billion dollars. Leaving Iraq at this point would be a disaster. That is, however, besides the point.

"Now can we get past the hyperventilating about tax cuts and deficits (which are high, but no respectable economist, including Keynes, has ever seriously suggested that tax increases promote economic growth or end recessions)"

No one is claiming that we need tax cuts to end the recession. The problem is that the instutited tax cuts offered very little in the realm of real world stimulus. They're not helping the economy.

"and recognize the real cause of the deficit- it was and is primarily institutional entitlements"

"was"? We had surpluses just a few years ago. Remember?

"and endless spending increases based on the current services baseline technique of budget planning, where increased spending is defined by headlines as "budget cuts"."

I can't check the numbers because their not up there in PDF and I'm too tired to google for another source, but I don't think that the increase in discretionary spending (and, in particular, non-defense discretionary spending) is more than the tax cut. I think it's significantly less.

Much of the deficit is simply due to the decrease in revenues because of the economy. This sort of deficit is generally not bad as one expects it to go away when the economy recovers. The current deficits have significant structural components and that's where the problem is.

While it's true that DeLong and others have pointed out flaws in Luskins analyses of Krugman's work, they are a long way from "all". In fact, I would wager that Luskin catches Krugman out--and more seriously out--than he is caught out by DeLong and others.

Clever how you simply sweep two thirds of all federal spending off the table by declaring it to be 'not wasteful'...perhaps means testing SSI, or Medicare (both of which make up a big chunk of that 'not wasteful' spending you don't consider) might be worth discussing if you are really worried about the budget deficit. Of course, this might be too radical for you, but shouldn't we focus our spending on those who need it, or do you really favor benefits for the wealthy?....

Re: PK's discussion of income inequality, perhaps we should also do a bit of analysis about the methodologies by which we define this inequality. The gap between the lowest quintile and highest quintile incomes isn't too hard to understand when you consider that these are not static quintiles, but in fact change over time as individuals move from one to the other. A 19-year old burger flipper (quintile 5) can expect to move to a 34 year old software developer (quintile 3), and even a 49 year old VP of development (quintile 1). Now, was this the poor getting poorer? The lowest quintile tends to consist of people at the lowest ebb of their earning years (re: young, inexperienced, unskilled, etc....mostly young according to BLS though), while the upper quintiles are people at the peak of their earning years (older, more experienced, more skilled). Obviously these are broadish generalizations, but all available data supports these generalizations. Hence as the gap between the quintiles grows, it isn't so much a formation of hard and fast 'classes' in the marxist sense, but more a matter of phases that we pass through. Most Americans move through at least 2, possibly 3 quintiles during their earning years, so the income inequality that PK is hyperventialating about is largely illusory, more a matter of his sloppy methodology than anything else.

As a side point, given the income mobility identified above, if the govt really wants to help those less fortunate, it might want to focus on removing obstacles to mobility (union-centric procurement policies, for instance, which act as barriers to entry for the labor market) or broaden the base of opportunities to enter the business market by limiting the bias against small business (a valid critique of Bush might include his overly corporatist outlook) and in favor of dominant market players.

Aaron,
You state, "There's not waste on, for example, the actual money spent out in social security checks". This is not necessarily true.

First there is the cost of the infrastructure to administer the program;
(qualify & tabulate the rolls, maintain recipient status and info (address etc.), create print and distribute the checks, pursue fraud.)

Then there is the cost of unqualified recipients receiving funds.

Then there is the philosophical argument of what the purpose of the programs are or should be, and how well these goals are achieved. The extent that the goals are not met is the extent of additional cost.

Wpeak: "First there is the cost of the infrastructure to administer the program;
(qualify & tabulate the rolls, maintain recipient status and info (address etc.), create print and distribute the checks, pursue fraud.)"

That's part of the discretionary budget, as I understand it. It totals around 7 and a half billion.

Now, if you want to argue that social security should be changed, you're certainly welcome to, but we're not talking about government waste any more.

Ok. $400 dollars a year in defecit. times 4 years is $1.6 trillion dollars more in debt.

Add that on to the current $6.8 trillion dollars of debt and you might start talking about Real Money!

That is the kind of math that makes the Krugman Truth Squad of not-really-economists declare victory - they tought me the difference between defecit and debt in econ 101 (actually, I think they just assumed we knew it). Apparently Ian et.al. never finished econ 101.

Ian, bear in mind that the deficit and the debt are not quite the same - one would have to cut 25% of the government spending to reduce the budget solely in that manner, which I don't think is concievable solely by cutting 'waste'. Cutting programs - sure, that could be done, but the real problems are debt interest payments and social security/medicare (which are, in essence, also debt payments).

As for Krugman, he's off the deep end politically. His Econ is still sound (usually), but I don't think he's noticing what's going on in America. Bush is *raising* funding for New Deal programs. The polarity in the US is nowhere near Vietnam levels (unless you mean the NYT Editorial Page polarity). Bush has not pushed hard to toss abortion or social security or civil rights. His foreign policies have not sparked ever-increasing terrorist attacks against the US (in fact, there have been none since 9/11). The environment is not dying at an unheard of rate. Public education has not been dismantled. Am I on the same planet as Krugman and the far left?

Look, Bush is running a somewhat reckless deficit, but even Krugman can look at the data and see it's only the third worst (by %) since World War II. (Then again, Krugman thought the Reagan deficits would lead to the same collapse he predicts now) Bush's attacks on civil liberties are bad, but not as bad as many claim they are. Bush has not been proactive in his enviro policy and has had terrible diplomacy around the world.

Still, "driving America into the ground"? Causing foreign investors to refuse to buy US bonds? Not even close.

God, what a train wreck of a man Paul Krugman has become. It really is hard to view any educated human being who honestly thinks G.W. Bush is the age's greatest threat as anything other than a moron and a goof. There he is, though, doing it up big time. Dispelling any doubts...

But I do give him credit, he is nothing if not self-dramatic: I'd wager the only thing what happened in 2000 was somebody (Cynthia McKinney, perhaps) hit the man over the head real hard (way too hard, in fact) with the collected works of Noam Chomsky. Such a political awakening! Big deal...

I would have guessed, given his hysteria and trouble with facts, that he was angling for a job for one of the Ivy League versions of Patrice Lumumba University, but he's already at the epicenter of those cadres, so it can't really be employment that is motivating him. The prevailing bet seems to be that he's simply gone off his nut, and that is probably as close to home as we need get. Ultimately he is nothing more than another irritating distraction from the very serious business of fighting the fascist legions in the world today.

Then again, maybe just wants to be V.P. on the Kucinich ticket. It would certainly fit him.

As a poster above correctly noted, the problem with the Bush Administration and this financial mess is not, pace Krugman, that it's a deliberate attempt to dismantle the New Deal-Great Society programs. There's no conspiracy, despite what Dr. Krugman argues with these increasingly strained comments. Many of his statements just don't make sense, it seems to me.

The problem is that the Bush Administration has NO plan to deal with the long term solvency of the country. They are hoping that the tax cuts will sufficiently grow the economy so that the increasing revenue will reduce the short term deficits. Long term, they have no clue. Quite simply: they're buying votes with tax cuts or spending increases.

Demography is destiny. EVERY other western industrialized democracy has similar - indeed, worse - financial obligations down the line. There isn't one nation that I would trade financial problems with. All of them, Japan, Germany, France, UK - have enormous obligations to their aging populations. And each of them have much higher tax rates than we do. Ironic that the best hope for some of these is an influx of young Muslim workers who can provide the revenues to keep the programs alive (hmm, maybe that's why Europe doesn't want to harm them, tongue-in-cheek).

The lowest household income runs from 0-$17,955.
Surely, you'd concede that virtually everybody starts off somewhere in that range?

Perhaps your first job was a cushy 30k, at the tender age of 18, but I doubt that holds true for most people.

The 2nd household income quintile is between $17,996-$33,006.
I think, since the median income in the US is quite a bit higher than 17,996, you'd have to admit that the vast majority of people have been through this income quintile, as well.

Well, there are your two income quintiles.
Clearly, "not true" is not quite true.

The third household income quintile runs up to $52,272.
Now, at *some* point in their earning years, most American households *certainly* make between $33,007 and $52,272, since the median household income is WELL into that range.

Here's a bit more from Kissinger: "The distinguishing feature of a revolutionary power is not that it feels threatened...but that absolutely nothing can reassure it (Kissinger's emphasis). Only absolute security--the neutralization of the opponent--is considered a sufficient guarantee"....I don't know where the right's agenda stops, but I have learned never to assume that it can be appeased through limited concessions.

...

The real threat [is] the internal challenge from very powerful domestic political forces who want to do away with America as I know it

What makes me think Krugman is a raving moonbat (as are, IMO, many liberals) and frankly frightens me are

that they seriously believe this

that they are utterly unable to see anything of themselves in these words.

The hysteria and conspiracy-mongering from Krugman is almost frightening if it wasn't so funny. Geezus.

He's definitely got several clear-eyed, spot-on criticisms of the Bush Administration's terrible fiscal policies. But all of that is tossed aside when he starts with the radio signals sent through his fillings nonsense.

"" Most Americans move through at least 2, possibly 3 quintiles during their earning years"

Not true"

I don't think Scott can take care of himself but I have to ask: What planet do you live on? Or, more appropriately, what country do you live in? 'Cause it sure don't sound like the US of A. Dear lord, significant movement through income brackets over time in the U.S. hasn't been a matter of debate in a LONG time. Scott is correct in his premise.

But beyond that, not only are traditional measurements of income inequality skewed by age (and therefore job skill levels), they are skewed by family size and skill level (again, functions of age). Pretty worthless in a dynamic economy but inherent patterns of mobility.

Expenditures don't result in a deficit unless they exceed revenues and revenues don't result in a deficit unless they are less than expenditures.

Given both the level of expenditures & the level of revenues are, to some extent, the result of conscious choices made by our decision makers, neither spending nor tax cuts "cause" a deficit.

What "causes" a deficit is the willingness of those decision makers TO ALLOW A DEFICIT TO OCCUR.

If you KKA folks want to try a little intellectual honesty, argue [1] taxes should be raised to match the level of federal spending you support; and [2] then argue why we'd all be better of with less money in our pockets and more in the pockets of Uncle Sugar.

I find it absolutely remarkable that nobody here has mentioned a word about the Chinese bondholders. What level of distortions Bush has perpetrated is fun for partisans in various dimensions of reality, but what the Chinese are going to do with their money is a different matter.

Help me out here. Even crack addicts know something about the value of having credit in a pinch.

I think the biggest problem with the Left (I think the word liberal is too generous) is that while they were young and impressionable (60's & 70's), they cast aside all the values that made
America great, and became true believers in the leftist dogma of that era. And just like the radical Islamist terrorists, they just cannot let go of their beliefs.

And this is the big problem. History is turning against them and proving them wrong. Just as the modern world scares the crap out of 16th century Islamists, the future scares the crap out of leftists. "The sky is falling, the sky is falling."

And the majority of political agnostics look at their personal circumstances, and the warnings of impending doom just don't reconcile to the reality of every day life.

The other thing that leftists are overwhelmingly (almost to the point of disbelief) guilty of is what psychologists call Projection. The left really does want to impose its own agenda on the world - not just America. So when others resist that imposition (ironically on the grounds of self-determination) the those resisting of wanting to impose their own agenda.

The real agenda of the right is erecting barriers so the left cannot impose its agenda. This idea of limited government and individual freedom was radical in 1776, but is actually American to the core. This is why America itself is evil to leftists. The very foundational principles of this nation are at odds with their agenda.

Beyond obstructing leftist, the right has some ideas we'd like to try out - like school choice. But most right wingers like myself don't want to destroy public education - just provide options and accountability.

Same with Medicare and Social Security. The left won the ideological battle over these programs long ago - with the help of some modern day right wingers. But trying out new ideas and providing options is, I guess, evidence of PURE EVIL.

defecits, tax cuts, tax increases,
and the national debt
DO NOT have a major effect on the business cycle or the economy. That is just politcal HOGWASH!
Clinton raised taxes and lowered the defecit and the economy grew. Reagan did the opposite and the economy grew.

taxes should be a low and as fair as possible - and they are neither now.
And NO candidate is running on a principled tax platform that is truthful.

The other thing that leftists are overwhelmingly (almost to the point of disbelief) guilty of is what psychologists call Projection. The left really does want to impose its own agenda on the world - not just America. So when others resist that imposition (ironically on the grounds of self-determination) the those resisting of wanting to impose their own agenda.

GT, what's going on here is the result of different economic schools. Paul Krugman is a Neo-Marxist/ Keynesean economist; he just doesn't see things from a free market perspective. In fact, he sees the results of a free market school as a lie. Each economic school believes different actions will stimulate an economy. Each has sacred cows to protect and enemies to savage. The next few years is going to be a good test case for the different schools, so let me explain this from the administration's perspective.

The economy was sluggish even before the shocks to it from 9/11 and the war on terror. Consumer spending was good, so there was no way to stimulate that. The problem was on the business side; investments that would create new jobs were not being made. You could see this from the high productivity figures. Industry was learning to do more with less, so it wasn't hiring people. The exuberance of Dot-com bubble had made business people wary. The question was, "how do we get out of this mess? how do we stimulate the economy?"

A free market economist would have told the administration that the problem was difficult. It couldn't be solved in the usual way: the Liberal method of giving a handout to the poor. Businessmen needed to be induced to invest in the economy. But, why weren't they investing now? Under the current tax and regulatory system, the opportunity costs were too high. It just wasn't worth it. A business could take great risks and spend billions on new projects only to find that the rewards for their work were consumed in taxes. So, the incentives had to be changed. That is where the tax cuts come in.

Yes, most of the money went to the high income earners since they were the one's paying the taxes. But, that is exactly what you wanted to have happen. Why? To induce those high income earners to work harder to make money by creating new projects. And if more entrepreneurs pursued "filthy lucre" this way then business would pick up, more people would be hired and more taxes would be paid on the profits. And the Bush administration could rightly say that they were trying to help the working poor by an application of the Laffer Curve.

Guess what? The stock market has picked up since the tax cuts were passed. Next year is likely to have a robust economy. If so, tax receipts will pick up and are projected by 2005 to pay for the deficit we are running now.

Of course, if you believe that the management of a company are useless drones, and that marginal tax rates do not effect business behavior then you might make the projections that Paul Krugman has. Krugman thinks that the Laffer Curve is nonsense and business men can't be taxed enough. That they won't respond to over-taxation by sloughing off. And if most of them sloughs off it won't result in the stagnant economy we recently had. But, we'll find out who was right before the next election.

"GT, what's going on here is the result of different economic schools. Paul Krugman is a Neo-Marxist/ Keynesean economist; he just doesn't see things from a free market perspective. In fact, he sees the results of a free market school as a lie."

This is one troubling aspect of "radical" discourse and why Krugman should be taken down, metaphorically speaking. Krugman describes himself as being radicalized over the past 2-3 years. And his comments certainly are of that type. He's clearly gone over the top with some of these accusations (Bush is a Marcos? Bush is a Mussolini? Bush is a Le Pen?).

What then happens is an equally harsh or "radical" counterargument. Instead of rational, reasoned discourse with the two sides exchanging ideas, we get counter accusations, name-calling, exaggerations, hyperbole.

Obviously, this is a comment section on a weblog where things can get spicey. But, I think columnists for major newspapers have an obligation to be reasoned and restrained in their commentary.

Dr. Krugman fails in this area. He seems to have a desire, a need, to say the most outrageous things. Make the wildest accusations without any or very little substance.

That's why he's a failure as a op-ed columnist. He should be ashamed of himself, really.

However, lest one worry that all Prof. Krugman sees are conspiracies, he delivers good news in the same column:

"I also believe that the administration played no role in the death of Elvis Presley...".

Now, several lefties seem to take the position that, "My goodness, Drezner linked to Luskin, that means Drezner is a knucklehead too. We deplore the closing of the lefty mind - the evidently-polarizing Mr. Luskin actually chats with Grover Norquist, the Evil Sorcerer behind the conservative conspiracies unmasked by P Krugman in his latest magazine article. Maybe Luskin was wrong about tax cuts and job creation (Max Sawicky, a proper lefty, thought both Luskin and Krugman were wrong), but this Norquist bit is great content, even for lefties brave enough to face the voice of darkness for a moment - hear the (public) conspiratorial lies direct from the source!

And, in a bit of a swipe at Krugman's analysis, Luskin has this:

"Are taxes too high to begin with? Krugman wrote that "In the United States, all taxes — federal, state and local — reached a peak of 29.6 percent of G.D.P. in 2000." But in an October 1999 article for Fortune (reproduced in his new book) Krugman cited "America's comparatively trivial tax burden — a mere 34% of GDP." How could Krugman have made such an obvious error? "

OK, this is a minor point. OTOH, if Krugman can't keep his research straight, that might be a bit discouraging for his supporters.

As I said above, I don't know enough economics to argue against Krugman's points there.

But here's the thing: Krugman has often got the stuff I do know about wrong, in a consistent pattern that distorts the image of Bush in a negative way. By doing so, he makes me more inclined to believe that his economic analysis is also distorted in the same way, even though that may not be true.

The fact that he is openly a radical, aggressive hyper-partisan doesn't help him convince me.

I doubt whether this is the proper forum to persuade this group that Krugman's analysis is more right than wrong. However, I think the conservatives commenting in this forum should reflect on the fact that Krugman's beliefs increasingly reflect the views of many moderate to liberal Democrats, not just the views of leftist Democrats or Greens. Increasingly, moderate Democrats have become radicalized by this Bush Administration. An increasingly belief among many moderate Democrats is that this Bush Administration is a radically conservative administration that is fiscally irresponsible, dedicated to redistributing income towards the top 1% of the population, and seeking to undermine longstanding American public institutions such as Social Security and public schools. Furthermore, the Administration is pursuing these goals in a dishonest manner. I will not seek to persuade the participants in this forum that this view is correct, but I think it is defensible, and in any event my point is that this view is increasingly held by the mainstream of the Democratic party. As evidence, consider the rise of Howard Dean in the Democratic nomination process, and the popularity of Al Franken's book. As other evidence, consider the views of George Akerlof, a Nobel prize winning economist, expressed in an interview this summer with Der Spiegel. Akerlof is a moderate Democrat, and a well-respected economist. He characterized the Administration's fiscal policies as "a form of looting", and stated that "I think this is the worst government the US has ever had in its more than 200 years of history. It has engaged in extraordinarily irresponsible policies not only in foreign and economic but also in social and environmental policy. This is not normal government policy. " (For a wide variety of links to this interview, google on "George Akerlof". One link is at http://www.informationclearinghouse.info/article4292.htm). My point is that Krugman is expressing a common view, so that trying to blame him for this message is missing the point. I would suggest that conservatives might reflect if perhaps the Bush Administration has done something to earn this criticism, even if you feel that it is overstated. Perhaps it would be politically healthy for the U.S. if the Administration would steer more towards the center rather than the right. Bush campaigned as a moderate conservative, a compassionate conservative. He has not governed that way.

Yes, it is a silly and minor point. Remember how in your site I explained to you the 3 characteristics of all PK bashers? That's #2 if I recall correctly ("But, but, but he said 10.4% and it's really 9.5%! The horror!")

As for the tax cut/jobs, no Luskin and Krugman are not equally wrong. Max disagrees with PK's model but that does not make it wrong or useless. Other economists have agreed with PK's take even if they don't all agree on the exact calculation (in fact the WH dopcument, in essence, agrees with PK). Luskin, on the other hand, doesn't understand the basic economics involved in this as Max makes clear.

I am surprised that this post prompted so much hideous rhetoric on a site that is usually sane and reasonable.

A few things: Krugman is not a Marxist, read some of his significant articles and it is clear that he has an amazing understanding of how markets work. All economist's work from models of markets, and Krugman's work has led a dramatic improvement in those models.

Krugman also takes his economic insights to an extreme conclusion in his popular press writings. There are times that I cringe when I read his columns, mostly because he is playing out a story to such an extreme conclusion. But there are also many times where his understanding of the current situation is spot-on.

If one beleives that Bush's tax cuts are divisive and fiscally ruinous, there are still other outcomes than a future with no government services and no elections. Sure that is one possible scenario, and it might be useful to consider. Similarily some Krugman critics like to consider "why America itself is evil to leftists".

History has shown the public to be a moderating voice to both extremes. But I would maintain this moderation is partially due to the extreme views of both sides, so why try to stop Krugman, acknowledge his extreme as part of this tug of war.

Finally, on the point of tax cuts vs. government waste. Yes, there is waste, but there will always be waste in an organization as large as the federal government. But to eliminate the federal government to get rid of the waste is perhaps the finest example of throwing the baby out with the bath water. Waste is annoying, but don't make the mistake of believing it can be eliminated. Here is an example of where Krugman is correct, you will not get rid of our current deficit without radical (federal government) service cuts or increasing taxes.

David M. Walker, head of the General Accounting Office, Congress' investigative arm, a rare Cassandra. He is giving a speech today warning that the nation's long-term fiscal outlook is seriously out of whack. And he challenges the assumption that economic recovery will solve the problem painlessly.

"We need a wake-up call," Walker said in an interview. "We need to come to terms with reality: The gap is too great to grow our way out of the problem. Tough choices will be required."

...Democrats — both in Congress and on the presidential campaign trail — have tried to spotlight the deficit as an emblem of the failure of Bush's fiscal policy. It has given new impetus to Democratic proposals to repeal all or part of the 2001 tax cut. Some congressional Democrats are considering a proposal to help cover Iraq costs by raising taxes on the wealthiest taxpayers.

...But the Democratic Party is deeply divided over whether or how far to raise taxes. And with their own big spending plans for Medicare, education and other domestic priorities, Democrats also lack a clear program for getting the budget back into balance.

..."Nobody is prepared to make any trade-offs," said Robert Bixby, executive director of the Concord Coalition, a budget watchdog group. "No one is prepared to give up anything important to them to bring the budget under control."

...Walker and other analysts argue, however, that economic growth alone will not bring the budget back into the black. They say that will require aggressive anti-deficit initiatives on a par with those launched in the 1980s and 1990s.

OK, end of excerpts. is anyone else shuddering in terror at the thought that we might have to re-visit 90's style austerity? We ended Reagan's "deficits as far as the eye could see" with one smallish tax hike and a booming economy (parts of which were a bit faux, but there you are.)

My guess - when Congress is in enough pain, this will happen again.

In other news, that is a very good point by Tim Bartik, 9:29 AM - it is not just Krugman. However, I think his dark night of fascism spin is a bit non-mainstream.

But who knows? We had the black helicopter crowd in the 90's, convinced that FEMA was the agency poised to lead a federal takeover of everything.

GT, Let's not fixate on the Neo-marxist / Keyesnean label; I don't think there is an accurate label for Paul Krugman now. His politics and economics are in flux, but the place he is heading toward is neo-marxist. Sorry for the imprecision.

If you had read Walter Russell Mead's book "Special Providence-- American foreign policy and how it changed the world" you would know that the world is going through a realignment after the breakup of the Soviet Union. The old 'Cold War' coalition between the Wilsonians and the Hamiltonians on foreign policy broke up through over-reach. The Jacksonians and Hamiltonians control foreign policy now while the Wilsonians fight a rear guard action at the State Department. And the Jeffersonians, totally out of power on the domestic front for the first time in seventy years, have funded the ongoing antiwar (anti-Bush administration) movement.

Being out of power does strange things a Leftist Jeffersonian's head. They are reactionary in defense of their 'Liberal Institutions.' They feel paranoid because the polls say that most of the population leans toward the administration's view. Since the 2002 election, the Democrats have shifted to the left and conservatives now complain because President Bush has overrun centrist ground. He is using 'triangulation' as effectively as Clinton did.

The Jeffersonians feel helpless and thus, are given to hyperbole. They feel surrounded by enemies and turncoats. Any initiative that changes their favored institutions (Education, Welfare and Social Security reform, down sizing of government, etc.) and the social incentives (tax and regulation reform) sends them into a tizzy. They don't really care about deficits, but can't stand that their economic opponents will get tax relief.

Reform is coming; the welfare state will be dissolved over the next twenty years or so, and they feel helpless to prevent it. So, they exaggerate the pace and direction of events. They proclaim that a fascist regime is looming. They demand increasingly leftist solutions to protect their Special Interests, but those solutions would also savage the economy.

Meanwhile, few people are paying attention. It is perfectly understandable that they feel pushed to extremes. Where else can they go in the short-term but neo-marxism?

PK has made clear, many times, that if you look at the fiscal problem only in economic terms the solution is not that difficult. Another strawman argument?

The problem which he highlights, and you adroitly avoid, is the politics. The republicans in general and the current administration in particular, are against any tax increase of any sort for any reason. That's why Bush is so much more radical than Reagan in PK's view (mine as well). Reagan raised taxes almost immediately after his original tax cuts, a point most of his supporters don't like to highlight. His pro tax cut views had limits and when the budget deficit grew too much he changed his mind, at least a bit. I still think that on net terms he left a fiscal mess but it was less than it would have been if he hadn't raised taxes.

Bush, on the other hand, is not only not interested in reversing his tax cuts despite the higher war-related spending he is also raising other spending as well. This as PK has been saying for years and GAO confirms now is a recipe for disaster. Once again PK has been vindicated on the facts.

PK's view is that this is part of a push from the right to dismantle the welfare state, something that is the declared objective of many of the main conservative leaders. No need for black helicopters, it's all public.

Now maybe you have a different interpretation. You say that Congress will go ahead with a tax hike. Are you asssuming a Dem Congress and Dem president?

This is yet another example of how weak the PK stalkers' arguments are. Instead of responding to the basic issue (the fiscal numbers don't add up and Bush's policies are leading us to a trainwreck) they play cute word games and nitpick.

Oh PK once wrote 34% and then 29%! the horror! I will never trust a word he says again!

GT, you're ignoring the fact that Krugman is his own worst enemy when it comes to attacking Bush, because he overreaches, says things which are obviously untrue (when he talks about the historical record), and always assumes the worst possible motivations. He's preaching to the converted, not winning people over.

I say this, mind you, as someone who thinks that Bush is lazy to the point that it makes him poorly suited for office. He doesn't do proper prep work, doesn't spend enough time reviewing things he should review, doesn't do the hard work of budgetary control....

But if government deficits are a problem (and I think they are), then overspending is as much a problem as the tax cuts, if not more. There's no one simple fix to that.

[A free market economist would have told the administration that the problem was difficult. It couldn't be solved in the usual way: the Liberal method of giving a handout to the poor. Businessmen needed to be induced to invest in the economy. But, why weren't they investing now? Under the current tax and regulatory system, the opportunity costs were too high. It just wasn't worth it. A business could take great risks and spend billions on new projects only to find that the rewards for their work were consumed in taxes. So, the incentives had to be changed. That is where the tax cuts come in.]

This argument was just proposed to me by my business partner.

So I asked him, I have a deal here for you. We can start this business up with our excess cash which we're earning 1-2% or we can take a risk with it and earn 20%. However, we're going to have to pay taxes of 35% instead of the usual 15%. What do you want to do. So he says, well, now our after tax return is going to be 14% instead of 17%. So he says that's a close one. I'll do it, but I'm not going to work as hard, because it's only going to put $1.4M in my pocket instead of $1.7M.

I said don't worry, we never pay the taxes anyway, becuase we're able to write off everything - depreciation and tax credit are a wonderful thing.

Oh yeah, I forgot, my partner said, we haven't paid corporate taxes in over 5 years.

But even if we did pay taxes, we'd take the 14%, because it would be the best available deal and we'd work just as hard. You see, no one else is doing better if we're all taxed at the same rate.

Oh, I forgot to add, that whenever our company ever starts to show a profit, we just go out and buy some loser company that's been bleeding for years for a few bucks and use their accrued losses to offset our winnings. Or start another enterprise that will have large assets we can depreciate. And now with the possibility of no dividend tax, I can distribute the profits to me and my partners without having to pay personal taxes. By the time we're ready to sell these companies, the capital gains tax ought to be gone as well. Beautiful. Sweet deal - praise Bush.

Was Krugman right about the CA Energy crisis. Yes, as far as he went. However, in his discussion of it on his Princeton site he omits one key detail.

The crisis was percipitated by the government, and prolonged by the government. The state government. By having a fixed retail price and a floating wholesale price it was a recipe for disaster. Market power was handed to the generators by the state government on a silver platter.

Also this part is just stupid:

Finally, when Gray Davis signed up a lot of power under long-term contracts, he fundamentally changed the game. Go back to the original example, but now assume that each generator has already locked in 100 mwh under long-term contracts. In that case, the last bidder has no incentive to bid high - if he does, he will make no sales beyond his contracts.

Those contracts are now way over priced. Davis locked in contracts when the price was high. The price controles Krugman talks about knocked the price back down, but guess what, CA energy rates are still sky high because they have to pay off those energy contracts.

Is his analysis flawed, no. It is incomplete and ignores some of the long term consequences. It is sloppy work for somebody who is supposed to be on the short list for the Nobel Prize.

Also the price controls Krugman talks about, those were asked for, for a long time. It took them months for FERC to respond and put them in place (please spare the Bush-Cheney-Haliburton conspiracy bullshit because the crisis started in 1999 and reached crisis mode in 2000, oh and lets not forget the price controls were actually put in place in 2001). They could have institutied price controls sooner and limited the damage.

4.4% of GDP = The trivial discrepancy between Krugman's inconsistent reports of tax receipts by government at all levels back in the Good Old Days, which his attackers are desperately seizing upon in an attempt to quibble their way out of confronting his real arguments.

1.5% of GDP = The ruinous gulf between OMB's estimate of federal government receipts for 2003 (16.3%) and what they would have been in the absence of Bush's irresponsible tax cuts (17.8%). It takes a certain special perspective to be a Krugman apologist these days.

It seems to me that if we're going to have an honest debate on the issue of these tremendous future fiscal obligations we have - social security and Medicare - all sides have to admit that "their side" contributed to this. These are not the fault solely of one side or the other.

This is where Krugman does a disservice. It's perfectly fine to sound his tocsin about how the Bush Administration is both failing to address this issue and how they have contributed to it.

However, he is deeply disingenuous in saying that the tax cuts caused this problem. Clearly, the cuts have been too steep, too fast and need to be curtailed.

However, were we to eliminate or rollback ALL of the cuts, these tremendous obligations would still be staring us in the face. Of the current $450 billion or so deficit this year, about $120 billion or so are the results of the cuts. Of the $1.6 trillion or so increase in the debt over the next four years, about 40% of that is the tax cuts. The rest is increased spending and lower revenues as a result of the slow down in the economy and the stock market bubble bust.

Had Al Gore been elected or Bill Clinton been re-elected, we would probably have (I know, anyone can make a guess - it's the Internet) upwards of $300 billion in deficits this year. Certainly, we would'nt be having any surpluses. Those surpluses of the last two years of the Clinton presidency were essentially anomalies due to higher capital gains revenues due to the excessively high stock market.

It seems to me that if you check the economic outlook for other western nations, we're in pretty good shape. Or, to look at it half empty, we're nowhere near as bad as other nations. Their financial obligations to their citizens is far more costly than ours. And their economies have much lower growth rates and, in some case, higher levels of unemployment (albeit, with larger safety nets).

I find it odd that Krugman never points this out. That other western nations with much higher tax rates and social programs are facing fiscal futures much worse than we face here.

And it would be nice, for those supporters of Krugman who say that he represents their growing anger, if Dr. K stopped the Republicans are Nazis innuendos. Okay? The Bush is Marcos, Bush is Mussolini, Bush is Le Pen line is getting tired. If you want us to at least listen to you, can the nonsense. You wouldn't listen to us on the right if we called Gore a Stalin, a Mao, a Pol Pot. Right?

"What did surprise me (it shouldn't have, but it did) were some of the readers who simply couldn't conceive of conservatives as anything other than villians motivated entirely by greed and a lust for power."

"Once again I wonder whether all liberals have been transformed into lunatics. I hear rumors of sane liberals, but upon further investigation each such report is invariably proven a mirage."

PK did not pretend to write a treatise on the topic. And he readily admitted that the state had created the conditions which allowed the crisis to happen. So, contrary to what you say, PK did not omit the role of the state govt in allof this.

What PK pointed out, long before anyone else in the media (and what many PK stalking bloggers still to this day don't get) is what could be done about the problem. PK realized that a combination of flawed deregulation and reduced production levels created a situation that electric companies, through market manipulation and market power, could dramatically raise prices.

I don't recall in what context PK wrote bwhat he did about the contracts. I'll take a look (although the pkarchive site apears to be down).

Finally, about the price controls. I wonder if you are joking or what. PK mentioned the need for them almost as soon as the crisis started and the Bush administration, including Bush himself, made fun of the idea for months. That moronic approach cost the state billions and in the end they ended imposing price caps in any case.

Hi Mike Corn,
You can play all kinds of fun games with numbers, but the bottom line still holds-- if you're going to stay in business you have to make a profit. I forget which Supreme Court Justice said, "The power to tax is the power to destroy." Thurgood Marshal?

You can tax and regulate so highly that new projects aren't worth the trouble. Just look at the malaise in the European Union, even when times are good a company can't expand, because the government won't allow them to fire the employee later when the market downturns. This tends to shorten the good times and prolong the bad. But, Paul Krugman believes none of this. His solution for good times and bad is "soak the rich."

PK did not pretend to write a treatise on the topic. And he readily admitted that the state had created the conditions which allowed the crisis to happen. So, contrary to what you say, PK did not omit the role of the state govt in allof this.

Sure he did. I was reading Krugman's stuff fairly regularly up till a few months ago and he did not cover the ineptitude of Gov. Gray Davis. Further, anybody who talks to Frank Wolak would have probably been told that this crisis started months prior to August 2000 yet Davis did jack shit.

If you can find a link I'll gladly read it and reconsider my view on this issue, but I don't recall any such thing being written by Krugman.

Finally, about the price controls. I wonder if you are joking or what. PK mentioned the need for them almost as soon as the crisis started and the Bush administration, including Bush himself, made fun of the idea for months. That moronic approach cost the state billions and in the end they ended imposing price caps in any case.

I told you not to hand me this bullshit. Do you think I'm an idiot? The crisis reached noticable (nationwide that is) proportions in August of 2000. Who was the President then? The Crisis reached truly stunning heights in December of 2000 (with a MW going for $1,600). Still Bush hadn't parked his butt in the Oval Office. Your obsession with Bush/Cheney/Halliburton is showing through. Enough already.

Further, if you haven't been paying attention this crisis was going on long before August 2000. Didn't you read my comment about when this crisis started? How's this, in 1998 a few months after the PX opened and the "deregulated" market started there was a price of $9,999/MW in one of the ancillary services market. Considering that prior to deregulation the price was typically around $30/MW it was a clear signal there was a problem. After that, Paul Joskow one of Paul Krugman's colleagues at MIT, wrote a paper giving evidence of market power. So did Frank Wolak. There are several papers from the Market Surveillance Committee that provided evidence as well.

Then when SDG&E declared their CTC collection done and their rate freeze over, things really hit the fan in CA. Rate payers were paying bills that had increased several fold. Yet Davis and FERC (under Clinton) did not repond.

The result were price caps in the wholesale market. But those price caps were removed prior to Bush taking office. That is when the price went up to $1,600/MW (in some hours).

The point is that government did not respond until very late in the crisis. And both Democrats and Republicans were in authority to do something. The moronic approach was used by the Democrats as well as the Republicans. You don't get that from Krugman. His analysis was flawed. You asked, I reported. Now you want to finesse the issue.

Unfortunately the pkarchive website out so I can't link to the relevant articles.

Yes there are a lot of players to 'blame'. PK never said that Bush was solely responsible for what happened.

PK focused on two things. First he tried to describe how the crisis came to be, explaining before anyone else in the mainstream media the role of market power and market manipulation. Remember that while you get to read Joskow or Wolak PK gets to talk to them directly and , more importantly, knows what to ask them.

The second point, probably the most important, was about the proposed solutions. Already in December 2000 the FERC had imposed certain price caps. Also the Energy Secretary ordered out-of-state powers suppliers to sell to CA.

I don't know if this was enough or if more could have been done at the time. But what is clear is that the new Bush administration assumed power in full ABC mode (anything but clinton). They extended the sell order but only for a few weeks and then refused to do so again. Then, on March 2001, they refused to impose price controls. I don't know if those price controls were the same or similar to the ones that were imposed on December 2000 but I do know that what the Bushies were saying at the time was nonsense. Remember that both Bush in CA and Abrahams said that price controls would neither reduce demand nor increase supply. PK effectively demolished this (based on Wolak's writings). Of course months later they finally caved in and did what they had up to then refused to do.

In all of this we are losing sight of the main point. PK was the ONLY mainstream columnist explaining this. He may not have provided all the information but he was better than anyone else. Would you have gotten better information from any of the columnists at townhall.com for example? Of course not.

And that's yet another characteristic of the PK stalkers. They not only don't understand what he says, not only nitpick, not only fail to address the main points (in this case was PK's assessment on March 2001 of what needed to be done correct or not?) but they also constantly judge him by standards they judge no one else.

I asked another PK stalker in another forum, after much back and forth, who was better. What columnist had less errors or less biases? He had to admit there were none. I don't pretend PK is better than everyone else all the time. It's just that he's not worse, as the PK stalkers try to imply.

Let's reduce this to one question. Please tell me what other columnist wrote about the CA energy crisis and better explained what was happening and what to do about it. I'm curious.

PK focused on two things. First he tried to describe how the crisis came to be, explaining before anyone else in the mainstream media the role of market power and market manipulation. Remember that while you get to read Joskow or Wolak PK gets to talk to them directly and , more importantly, knows what to ask them.

Three things.

1. Wolak is a member of the Market Surveillance Committee and he doesn't talk to just Krugman, but also to people in the industry here in CA.

2. Joskow is also a consultant for one of the utilities.

So it might be a bit presumptious of you to know who these guys talk to and don't.

3. Are you saying that what they write in testimony and in papers that end up in court documents is different than what they are saying to Krugman?

The second point, probably the most important, was about the proposed solutions. Already in December 2000 the FERC had imposed certain price caps. Also the Energy Secretary ordered out-of-state powers suppliers to sell to CA.

Yes, they did take some actions, but they were wholely and completely ineffective. Is that the best argument for government? Sure, they acted late. Sure they ignored evidence of a problem. But hey, eventually they did the obvious thing.

I don't know if this was enough or if more could have been done at the time. But what is clear is that the new Bush administration assumed power in full ABC mode (anything but clinton).

First, it was not enough. Prices were very high even after December 2000. Things did not settle down until FERC finally imposed a soft price cap based on the least efficient provider.

I don't know if those price controls were the same or similar to the ones that were imposed on December 2000 but I do know that what the Bushies were saying at the time was nonsense. Remember that both Bush in CA and Abrahams said that price controls would neither reduce demand nor increase supply.

It was also under Bush that FERC finally took the correct steps. You are ignoring the question of why didn't Clinton tell FERC to do it while he was President?

PK effectively demolished this (based on Wolak's writings). Of course months later they finally caved in and did what they had up to then refused to do.

And what Clinton refused to do. Jesus, are you really this ideologically blinded? Second, I am not disputing Wolak's claims, I agree with them. The problem is that the market power was largely handed to the generators by the government.

And that's yet another characteristic of the PK stalkers. They not only don't understand what he says, not only nitpick, not only fail to address the main points (in this case was PK's assessment on March 2001 of what needed to be done correct or not?) but they also constantly judge him by standards they judge no one else.

That is bullshit. I have repeatedly taken apart those that tried to deny the role of market power. I was arguing that prices could have only gotten this high via market power shortly after the crisis became big news and was getting play on discussion forums. I also argued in favor of FERC doing something, but for 6-7 months they sat around with their heads up their collective asses. The failed utterly in carrying out their mandate.

And this isn't a nitpick. The problem was basic economics. Here is the problem:

1. Retail rates were frozen.
2. Wholesale rates unconstrained.
3. Generators engaged in strategic behavior.
4. There was a legal requirement for utilities to buy all the energy their customers demanded (i.e., an obligation to serve).

All of these thing combined to result in prices that were astronomical. Remove any one factor and the price comes down.

See how simple that was. Easy. Could have fit quite nicely in a NYTimes column, but it didn't. Why? Because numbers 1,2, and 4 were a result of the government. And the fact that 3 went on for so long was because of government failure.

(Three caveats: I'm also assuming the transmission system constraints [namely Path 15] in number 3, that is generators used this constraint in their strategic behavior. Also wholesale prices were constrainned, but it was a simple hard cap, the soft cap varies with the costs of the least efficient producer necessary to clear the market. Also, there were weather considerations such as a drought and a hot summer with several no-touch days.)

Perhaps if Krugman got his nose out of Atrios' blog and stuck it into Lynne Kiesling's blog he'd have learned a few things. And Lynne Kiesling's coverage of the crisis was pretty good. (http://www.rppi.org/ps280.pdf)

You claim FERC refused to impose price controls under Clinton. Where did you get that? FERC imposed certain price controls (of $150 ) in December of 2000. The Bush administration let several of FERC's orders lapse.

In any case none of the points you make about the economics of the crisis refute PK in any way. In fact his articles agree with what you say.

PK only wrote about 5-6 articles on the CA crisis (from memory since the pkarchive is down). He mainly focused on what was happening when he wrote and what should be done about it. Remember that although the crisis started before 2001 state-wide blackouts only happened beginning 2001. His big beef with the Bushies was that they kept saying that price controls were useless and that this was simply a problem of supply and demand and they could do nothinb about it. This was false and PK explained that (and was proved right).

If you agree that market power was an important factor what are you criticizing PK for? For not making clear that the problem had roots from before Bush was president?

There are myriad of points one could make about the CA crisis. PK chose to concentrate on the reaction of Bush's administration. Was it incomplete, meaning that more couiild be said? Of course. Was he right? Yes. Did any other columnist provide a better analysis or explanation? I have not seen it.

Even the article you link doesn't talk about the need for temporary price controls, which the FERC ended up doing.

You claim FERC refused to impose price controls under Clinton. Where did you get that? FERC imposed certain price controls (of $150 ) in December of 2000. The Bush administration let several of FERC's orders lapse.

Wrong again I'm afraid. That price cap was flexible price cap and wasn't necessarily binding if higher prices could be "justified". Even when that "rate cap" was in place the price went well over $1,000 at times.

In any case none of the points you make about the economics of the crisis refute PK in any way. In fact his articles agree with what you say.

Do you practice being deliberately obtuse? I didn't disagree with what little Krugman wrote. However, he ignored several factors such as that market power was a result of government actions. The lenght of the debacle was the result of due to government inaction.

PK only wrote about 5-6 articles on the CA crisis (from memory since the pkarchive is down). He mainly focused on what was happening when he wrote and what should be done about it. Remember that although the crisis started before 2001 state-wide blackouts only happened beginning 2001. His big beef with the Bushies was that they kept saying that price controls were useless and that this was simply a problem of supply and demand and they could do nothinb about it. This was false and PK explained that (and was proved right).

There are multiple problems here. First, Krugman is blinded by his hate. The only reason that the blackouts occurred in 2001 was because that was when the utilities in CA ran out of money and had to stop paying for electricity.

Second, this problem was around for over a year before it reached nationwide attention. Is Krugman so stupid as to not ask Wolak this or how about just chatting with his departmental colleague Joskow? Like Krugman you want to harp only on the "Bushies". I keep telling you this train wreck was becoming apparent well before August 2000 and the Gov. and the Pres. did nothing. Were is your abuse for them?

There were several things that could have been done to mitigate this problem. One remove the price controls on the retail market to introduce a much needed demand response. Wolak talked about this in his papers, I can't believe he didn't mention it to Krugman. Put price caps on the whole sale market like they did in the Spring of 2001. These price caps would be flexible enough to keep the lights on, yet remove virtually all incentives to game.

The conservation measures would have slo helped reduce demand during peak periods as well, but again they were well after the crisis was under way.

If you agree that market power was an important factor what are you criticizing PK for? For not making clear that the problem had roots from before Bush was president?

For not fully explaining where that market power came from. The ineptitude of both sides in this. Sure it must be great fun bashing only the Bushies, but both sides dropped the ball.

There are myriad of points one could make about the CA crisis. PK chose to concentrate on the reaction of Bush's administration. Was it incomplete, meaning that more couiild be said? Of course. Was he right? Yes. Did any other columnist provide a better analysis or explanation? I have not seen it.

There is this great meme going around the media/blogosphere right now. Bush is a liar. David Corn calls Bush on his "lies of omission", but isn't failing to point out one of the key problems here also a "lie of omission"? If not, then perhaps the current spate of "Bush and the Bushies are liars" is also a load of Bullshit too.

"But there's nothing crazy about ferreting out the real goals of the right wing; on the contrary, it's unrealistic to pretend that there isn't a sort of conspiracy here, albeit one whose organization and goals are pretty much out in the open."

If organizing and openly promoting an agenda within the framework of established media and political institutions is conspiracy then Krugman should urge the Democrats to try it some time.

I found that the Piece by Luskin on NRO failed to address the main point of the Krugman NYT essay: that conservatives want to dismantle Social Security and Medicare by creating a fiscal crisis for the federal goverment.

Luskin seems content to quote some superficial statements from Norquist which portray the latter in a positive light; but he never asks him any of the tough questions Krugman raises. Questions like: what about the deficit? Won't cutting more taxes exarcebate it? How will we pay for these tax cuts, especially given our current fiscal problems? What about Social Security and Medicare, whose costs will balloon as baby-boomers retire? How can we expect to pay for these programs ten years from now? Should they be cut to pave the way for more tax cuts?

It would be interesting to see what intellectual position Norquist would have staked out when asked these questions. Indeed, Norquist says "Over 25 years I'd like to see the size of government shrink by half..." But as Krugman writes in his NYT essay, "... take out Social Security, Medicare, defense, Medicaid, government pensions, homeland security, interest on the public debt and veterans' benefits -- none of them what people who complain about waste usually have in mind -- and you are left with spending equal to about 3 percent of gross domestic product." This is compared to the roughly 30% of GDP the US currently collects in taxes.

Therefore it makes some sense to read the desire to eliminate Medicare-Medicaid and default on money promised to seniors into Norquists' call for dramatic tax cuts. And since Luskin never addressed any of these issues, Krugman's argument remains unanswered.